Funding for lending scheme fails to boost lending to businesses

Lending to small and medium sized enterprises (SMEs) by banks and building societies contracted in the three months to November 2012, despite Government efforts to boost business lending.

Figures from the Bank of England's trends in lending report show that lending to businesses fell by around £4 billion over the period. This comes despite the increased availability of credit in the final quarter of 2012 and suggests that businesses are lacking the confidence to invest.

Mortgage approvals, however, were higher than the previous three months - due in part to the launch of the funding for lending scheme in July 2012. The figures suggest that the scheme has failed to ignite lending to small businesses, The Guardian said.

Lending to larger companies has also fallen in each of the past three quarters, despite larger companies having access to more funding sources than smaller firms.

According to the report, major UK lenders expect their net lending to SMEs to increase in 2013.

Director-general of the British Chambers of Commerce (BCC) John Longworth said the weak figures paint a challenging picture for UK firms.

"These numbers reflect the uncertainty of the UK economic outlook and the difficulties in the financial sector, as banks continue the process of deleveraging. The report also confirms that some of our youngest and fastest growing businesses are still struggling to secure the credit they need to grow, stymieing growth across the country. Also, businesses that have weathered the recession and are now looking to fund growth and exports are having the same difficulties."

The BCC and the Confederation of British Industry have both called for the Government to put its proposed Business Bank into action immediately.